What is Rebalancing?

Rebalancing is the process of realigning the asset weightings in a portfolio to maintain a desired asset allocation and manage risk. For example, if your target asset allocation was 50% stocks and 50% bonds and your stocks performed well over a period of time, it could have increased the stock weighting of your portfolio to 70%, making your portfolio significantly more risky. Rebalancing would involve selling some of your stocks and buying bonds to get your portfolio back to a less risky, 50/50 allocation.